Enerflex Ltd (EFXT) 2016 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Enerflex Fourth Quarter and Year end 2016 Results Conference. During the presentation, all participants will be in a listen only mode. Afterwards, we'll conduct a question-and-answer session.

I would now like to turn the conference over to your host, Blair Goertzen, President and Chief Executive Officer. You may begin.

All right. Thank you and good morning, everyone, and thanks for joining us. And here today with me is James Harbilas, Enerflex's Executive Vice President and Chief Financial Officer.

During this call, we will be providing our financial results for the three months ended December 31, 2016, a brief commentary on the performance of our three business segments, and a summary of our financial position at the end of 2016. Approximately one hour following the completion of this call, a recording will be available on the website under the Investors section.

During the call, unless otherwise stated, we will be referring to the three months ended December 31, 2016, compared to the same period of 2015. I will proceed on the basis that you've all taken the opportunity to read yesterday's press release.

Enerflex's fourth quarter financial results reflect the challenging business environment in which we've been operating. The global energy market has been depressed from the prolonged downturn as customers continued to be cautious with their capital spending. However, the recent stability in commodity prices drove an increase in inquiries and opportunities leading to a rebound in bookings during the quarter. For Enerflex, this resulted in a $92 million or 54% year-over-year increase in bookings during the fourth quarter compared to the same period of 2015.

The company also saw an increase in backlog for 2016 of $194 million, which is 45% higher than December 31, 2015, due to stronger second half bookings. The improved bookings trend experienced during the back half of 2016 has continued into 2017, and the company is already seeing the positive impact on bookings and project inquiries globally. As of today, Enerflex is expecting bookings for the first quarter of 2017 to exceed $190 million in North America.

Additionally, during the quarter, Enerflex was engaged to operate certain gas processing facilities within the Delaware Basin in the Permian for an initial term of 24 months. This type of contract is consistent with our strategy to focus on recurring revenues from long-term maintenance and service contracts. Enerflex is optimistic that further improvement in commodity prices will allow customers to continue to increase their capital investments, which should translate into further demand for the company's products and services.

During the quarter, Enerflex undertook additional restructuring actions and recorded impairments of assets in its Australia, Asia, and Canadian operations, including the closure of the centralized parts distribution facility in Leduc, Alberta. Global headcount also decreased during the quarter to approximately 1,800 employees. The $7 million of restructuring costs recorded in the fourth quarter compared to $11 million in the same period of 2015, along with ongoing cost savings measures, are anticipated to result in material annualized savings and position these regions well for 2017.

Enerflex's financial performance also continued to benefit from the recurring revenue streams associated with existing and new long-term rental and service contracts, and through our geographically diversified businesses. The company will look to continue to preserve awarded gross margins and to aggressively manage SG&A expenses.

Steps taken over the last 24 months have allowed for a greater focus on key market opportunities. The company has continued to deploy capital and pursue growth opportunities in the MEA, USA, and Latin American regions.

Now turning to the outlook for each of the segments. The Canada segment experienced considerable challenges during 2016, which resulted in multiple rounds of restructuring as well as impairments of assets, inventory, and goodwill. The region's bookings and aftermarket service activity was also negatively affected due to the low natural gas prices. However, as commodity prices strengthened and customers increased their spending, the region recorded stronger bookings of $114 million in the fourth quarter, a $43 million increase compared to the same period of 2015 and a $93 million increase over the third quarter of 2016.

Backlog increased to $167 million, which is a $16 million increase from December 31, 2015. The company believes that this segment will not fully recover this year, given the prolonged nature of the downturn as well as the intense competition for the reduced pipeline of work. Enerflex expects that the recovery in Canada will be a slower process. However, if commodity prices remain stable, Enerflex remains optimistic that we will experience higher activity levels and booking activity in this region for 2017 relative to 2016. And as I noted previously, we are anticipating a stronger first quarter in 2017 as our customers' capital budgets have increased.

The recent performance of the USA segment has been largely dependent on the activity in the liquids-rich U.S. gas basins, which gave rise to new orders for compression and process equipment for this region. Despite the significant decrease in oil prices and the associated impact on NGL prices, the recent partial recovery has led to an improvement in inquiries and bookings in the United States.

For Enerflex, this resulted in bookings of $143 million for the fourth quarter compared to $41 million in the same period of 2015. At the end of the quarter, backlog was $390 million compared to $153 million at yearend of 2015. Again, there is still uncertainty as to the duration of the new market reality for the region; although if current prices hold, we are optimistic that a continued uptick in inquiry levels and bookings will follow.

Enerflex also remains optimistic about the future in Latin America. In Brazil, the company is expecting a more stable environment and an increased interest for natural gas-fueled projects as a means to reduce dependency on hydroelectric power. The continued development of the Vaca Muerta shale play in Argentina in the short- to medium-term could generate material opportunities for Enerflex's products and services. Additionally, infrastructure developments in Bolivia, Colombia, and Peru are expected to result in an increased Enerflex presence in these countries.

In the Rest of the World, bookings decreased by $53 million in the fourth quarter of 2016 compared to the same period of '15. Enerflex continues to pursue a large number of Engineered Systems and recurring revenue opportunities across this region. Backlog of $64 million at December 31, '16 decreased by $60 million relative to December 31, 2015.

On another positive note, the company continued to improve its HSE culture in 2016. Enerflex achieved its best safety performance to date with a total recordable injury rate of 0.65 or 35% below the 2016 goal. Additionally, Enerflex tracked above its 20% growth target for gas processing bookings in the year. And the Rental fleet grew to almost 500,000 horsepower with the completion of a large project in the Middle East, which contributed to Enerflex exceeding this goal of 35% to 40% recurring revenue.

I will now turn it over to James Harbilas, Enerflex's Executive Vice President and Chief Financial Officer, to review our financial results.

Thank you, Blair. Financial results for the quarter weakened year-over-year, largely due to restructuring charges and goodwill impairments. With the fourth quarter results adjusted to remove the impact of goodwill impairment, asset impairments and restructuring costs, there hasn't been an improvement in EBITDA on a quarter-over-quarter basis. Adjusted EBITDA for the fourth quarter of 2016 was $58 million versus $56 million in 2015. The underlying increase was largely driven by higher gross margin in the Rest of World segment and lower SG&A savings. These results were partially offset by reduced revenues and project margins in Canada.

Consolidated revenue for the fourth quarter was $343 million. This slight decrease of $15 million compared to 2015 was due to lower revenue in the Canada segment, partially offset by increased revenue in the USA and Rest of World segments.

Consolidated gross margin for the three months ended December 31, 2016, was $69 million or 20% compared to $75 million or 21% in the same period of 2015. Gross margin decreased due to higher inventory reserves, asset impairments, and warranty costs experienced during the quarter, offset by stronger overhead absorption. The company's geographic and product line diversification also helped keep margins relatively stable in a competitive and constrained economic environment.

Selling, general, and administrative expenses for the fourth quarter was $48 million compared to $62 million in 2015. The decrease was a result of reduced compensation on lower headcount, combined with favorable foreign exchange impacts, and improved bad debt experience.

EBIT for the fourth quarter of the year was a loss of $36 million compared to a loss of $21 million in the same period of 2015. However, during the quarter, Enerflex recorded and adjusted a number of items that are not expected to recur in the normal course of business, including impairments or gains on assets and restructuring activities. The adjusted EBIT for the fourth quarter is $34 million, an improvement of $6 million when compared to the same period in 2015.

During the quarter, Enerflex generated a net loss from continuing operations of $45 million or a loss of $0.54 per share, compared to a net loss of $34 million or a loss of $0.43 per share in 2015. Adjusted net income was $25 million for the fourth quarter of 2016 versus $15 million in the same period of 2015. As well, the company generated $4 million of cash flows from operations and $92 million for the full year of 2016. This, coupled with reduced capital expenditures and the equity offering, Enerflex reduced debt by $23 million in the quarter and by $194 million during 2016.

Continuing with the review of our product breakdown. Engineered Systems revenue slightly decreased to $215 million for the fourth quarter, which was 3% lower as a result of reduced opening backlog in Canada, partially offset by an increase in the USA and Rest of World segments.

Service revenue for the fourth quarter was $84 million, a decrease of 12% due to lower part sales and service revenues in Canada and the USA segments, partially offset by an increase in the Rest of World segment. The decrease in service revenue was most significant in Canada and Australia, which was impacted by changes to its distribution arrangements and the deferral of maintenance work by customers.

Rental revenue for the fourth quarter was $44 million, which was 4% increase over the fourth quarter of 2015. This was driven by increased activity in the MEA region and increased rental equipment unit sales in Canada, partially offset by a slight decrease in USA rental revenue.

Moving on to our regional results. In Canada, revenue decreased by $39 million during the fourth quarter, as a result of lower revenue across the Engineered Systems and Service product lines, largely driven by the challenging economic environment in 2016. Engineered Systems revenue decreased due to lower 2016 opening backlog of $151 million compared to $332 million at the start of 2015. Service revenue was lower due to reduced part sales and decreased level of maintenance and overhaul work. While Rental revenue saw an increase as a result of higher rental unit sales, partially offset by reduced utilization rates for the Canadian rental fleet.

Operating income for the fourth quarter of 2016 decreased by $13 million as a result of lower revenues, lower gross margin and higher restructuring costs recorded during the quarter. The decrease in gross margin was attributable to reduced revenues, lower project margins, lower overhead absorption in our manufacturing facilities, and the noncash impairment of the rental fleet and inventory totaling $4 million, partially offset by improved warranty experience. The decrease in SG&A was attributable to lower compensation expense on reduced headcount.

In the USA segment, revenue for the fourth quarter of 2016 was $158 million. A slight increase of $2 million was attributable to improved Engineered Systems revenue as a result of increased bookings in the second half of 2016 as compared to 2015. This was partially offset by lower service revenue on deferred maintenance, while Rental revenues was lower due to weaker utilization and rental rates.

Operating income for the fourth quarter increased by $2 million due to decreased SG&A expenses, partially offset by lower gross margin. The decrease in gross margin was attributable to lower revenues -- was attributable to lower -- by project margin improvements and improved overhead absorption. Reduced SG&A expenses was primarily a result of decreased compensation expense on lower headcount.

Revenue in the Rest of World segment for the fourth quarter was $132 million. The increase of $22 million was attributable to improved Engineered Systems, Service, and Rental revenue as a result of new projects becoming operational during 2016 that were under construction in the same period last year.

Operating income of $11 million increased by $19 million in the same period of 2015 due to improved gross margin and lower SG&A expenses. The increase in gross margin was a result of the overall increase in revenue, stronger overhead absorption, better warranty experience, and project margin improvements, partially offset by $2 million of impairments on idle rental assets. The decrease in SG&A expenses resulted from lower compensation expense on reduced headcount, offset by restructuring costs for onerous leases of $4 million.

In managing liquidity, the company had access to a significant portion of its bank facility for future drawings to meet the company's future growth targets. As at December 31, 2016, the company held cash and cash equivalents of $168 million and had drawn $358 million against the bank facility, leaving it with access to $350 million for future drawings.

The company reduced net debt by $23 million in the fourth quarter and continues to meet its bank facility covenant requirements with a net debt-to-EBITDA ratio of less than 1.3:1 as calculated for covenant purposes.

In summary, our fourth quarter financial results reflected the challenging reality surrounding global commodity prices. However, the company's geographic diversity offsets some of the impact because the decline has been less drastic in some of the regions we operate in. Over the quarter and throughout 2016, Enerflex increased recurring rental revenues, improved project margins, and increased bookings in backlog. The company will continue to operate with caution and stay focused on controlling costs, preserving the strength of our balance sheet, and generating free cash flow, positioning us well through 2017. We have deployed capital, and we'll continue to pursue opportunities in those regions where there is economic growth such as the USA, Middle East, Africa, and Latin America regions.

This completes the formal component of the webcast. Additional details can be found in our March 2 press release. We will now be happy to take any questions. Operator?

(Operator Instructions) Our first question comes from the line of Ben Owens of RBC Capital Markets. Your line is now open.

So I was wondering if you'd provide some color on the fourth quarter orders in Canada, talk about maybe which projects drove the strong bookings number there.

Yes, so the bookings that we talked about subsequent to the quarter were in North America in general; so it included both Canada and the U.S. In Canada, we're seeing a lot of work on the process side right now, and that's what drove the lion's share of those orders. So it's really midstreamers that are looking to add capacity to their existing asset base, and that's really what drove -- what's driving the activity that we're seeing in the Canadian market to start 2017.

Okay, great. Was that true for the fourth quarter number as well? Was that driven primarily by processing?

Yes. The fourth quarter definitely had some processing in it as well. But I think -- if I look at the fourth quarter in Canada relative to the first quarter, it was much more balanced between compression and process, whereas the Q1 '17 activity that we're seeing so far is more heavily weighted process.

Okay. And then that first quarter orders number you guys gave of greater than $190 million, is that heavily -- or, I guess, which region would that be or more weighted to, would that be more U.S. or Canada?

Well, no. It would be more weighted to Canada right now. But like I said, we're talking about both Canada and the USA right now that we're seeing strong activity levels to start the year.

Okay, great. Thanks. And then on SG&A, you guys had a bit of a ramp-up in the fourth quarter. What should we kind of be modeling for a good run rate for SG&A throughout 2017?

Yes. So, Ben, we actually -- SG&A had obviously some restructuring costs in it, and we took some provisions for onerous leases in our Rest of World operations. So if you normalize for that, that would be the run rate that we would be expecting going forward. And we provided that information in the MD&A by segment and on a consolidated basis, so that would be readily available to you guys. We've kind of split it between COGS and SG&A.

Okay. So no real change from the fourth quarter run rate once you normalize for those items?

Correct.

Okay. Great. Thanks, guys. I'll hand it back.

(Operator Instructions) Our next question comes from the line of Greg Colman of National Bank Financial. Your line is now open.

I got a few quick ones here for you. Guys, you talked about the, being engaged to operate certain gas processing facilities in the Delaware basin of the Permian for an initial term of 24 months. Are these some of the larger horsepower projects that are -- and how are they helping out on margins in that region of the world versus some of the smaller horsepower stuff?

So if I understand your question, are you referring to the service work relative from a margin standpoint?

That's right, that's right.

Yes. So, yes, obviously, this is a lot of equipment that's going into the Permian right now, and we've been successful in obviously manufacturing that equipment. And this is a service contract related to the equipment that we're manufacturing and installing at site for a customer in the Delaware Basin.

And, look, O&M agreements typically have stronger margins on it than our manufactured products, so this would be positive from an EBIT margin standpoint for that region once they become operational. And those two plants we expect will become operational; the first one at the end of April, with the second one being operational in May. So these will be contracts that contribute to a profitability in that region, starting with Q2.

And when you talk about the initial term being 24 months, how should we think about that? Is that something which is assuming adequate, I guess, service to the customer? Is there likely to be sort of evergreen renewal over the life of that yield? Or is it something where it is more likely to just be somewhat a shorter term kind of couple of year contract?

Well, right now, it's an initial term of 24 months. We're going to work hard to operate and maintain those plants relative to that contract and exceed it. And if we -- the customer is happy, we want to definitely engage in renewal discussions with that customer, and we also want to engage in discussions about the opportunity to do O&M on other plants that are going to become operational in that region.

Okay, good. Thanks for that, James. Keeping on the contract side but moving out internationally, we've been on the lookout for some international rental contract bid results. Didn't see any mention of that in the prepared material last night. Didn't hear anything on the prepared remarks this morning, although I should tell you, I had some technical difficulties and signed in about 10 minutes late, so I might have missed it. But do you have any color as to some of those larger contracts in the Rest of the World segment that you are taking a bid at and when we could if and ever -- sorry, if we could expect to see some results on those in the near term?

I think it would be fair to say that the Rest of World segment, while it continues to be very active from an inquiry level, it is very lumpy in terms of the inquires being bid from an RFP basis and then obviously the award coming. So we didn't have anything in our prepared remarks because we just haven't seen an award yet with respect to some of these opportunities, both on the Engineered Systems side that we're chasing and the Rental side. But we continue to pursue them. And as the year evolves, we'll report on those if we're successful, but it has been taking time, and some of the bids, from an award standpoint, aren't due until Q2 of '17 and Q3 of '17.

Got it. Understood. And just so we are keeping an eye out from a reporting perspective, are these the sort of things which you would likely determine warrant a press release and informing the market on? Or would it be more normal course of business and you'll inform us as your quarters come out?

I think it would be more normal course of business, and we would inform the markets as the quarter is recorded.

Great. And then lastly, just coming to some of Ben's comments and following up on that. If we take a look at the work that you're anticipating coming in the first quarter here, I think I'm right on this, but please correct me if I'm wrong, it looks like Canada is going to be having a turning point in terms of revenue trajectory in Q1. Would that be a fair assessment based on your disclosure about activity coming up in the first quarter?

Yes, right. It would be -- obviously, the bookings in Canada were heavily weighted to the fourth quarter of 2016, right? So, yes, a lot of that is on the production floor right now, and we're starting to manufacture, and we will see a contribution in Q1 of '17. But I would expect that we're going to start to see Canada improve or the trajectory in Canada improve much more meaningfully beginning in Q2 '17 into the rest of the year. I think that takes some time to ramp up with some of these projects, and a lot of those bookings -- hit bookings in December of '16, right? So we're really starting to ramp up in Q1 of '17. So we'll see a positive trajectory in Q1, but I think it becomes a much more meaningful contribution starting in Q2 and beyond in Canada.

Thanks. That's excellent color on that. That's it for me. Congrats on a very strong quarter.

Our next question comes from the line of Jeff Fetterly of Peters & Co. Your line is now open.

On the Canadian side, the large booking numbers in Q4, do you think that's, call it, a catch up in the Canadian market that you're starting to see? Or was there anything specific that you thought drove those bookings?

Jeff, there's a number of these larger projects that I would almost call quasi-nontraditional because of the size of the projects and the way with -- and they're going to be executed. So there is some catch-up. And I think that some of the final investment decisions were likely delayed until some of the stability and commodity pricing occurred here in Canada. So -- and that seems to be continuing on with some of these larger gas processing facilities that are being contemplated here and also [let], obviously, in Q1 and Q4 of last year. So I would suggest that you're probably on the right track of saying, there were some FIDs that were delayed or contemplated, and now they're coming into fruition.

And did I hear correctly earlier that you said the $190 million or greater for bookings in Q1 in North America, that is, at this point, weighted more towards Canada?

That's correct.

Yes. Slightly more, yes.

Okay. So do you expect there's going to be a little bit of a flurry of awards and bookings in Canada and then a slower period? Or do you think this is sort of a consistent trend that you're going to see in the market?

Well, we're very cautious about saying this is a trend. Certainly, two quarters could be an inflection point. But I think the -- we have to see how we look here in the next two to three quarters. There is heightened activity in the quote book, but that's globally. But certainly here in Canada, it's probably as good or better than it's been for the past two years. So based on that, as long as there's stability in commodity pricing, we do look to see this improve -- this trajectory improve over the next two to three quarters as well.

Do you think your hit rate in Canada has increased, both in Q4 and Q1? Or is it just a function of how the overall market has moved?

I think it's a function of how the overall market has moved and the type of equipment that has been left in the path to market.

Okay. On the U.S. side, I know the bookings remain reasonably strong in Q4 and look like they're trending positively in Q1. But I know Q3 set a very high watermark for you. But do you see sort of any specific trajectory in the market in the U.S. right now?

I think it's just, again, strengthening. The order inquiry book has strengthened considerably in the U.S. as well. And so -- again, you're right, Q3 was a very good bookings quarter. Four and one will also be better than we had experienced for the prior 12 months.

So, again, it comes on the fact that there is a large volume of inquiries and then we've got a fairly good success rate in the region as well. So we're looking at this more positively than other regions of the world in terms of the next 12 months.

Okay. On the international Rental side, I know that's a fairly stable business but there is a little bit of a sequential decline in revenue there. Is that anything to do with contract renewals or turnovers? Or is that more of sort of, call it, a quarterly blip?

No, I think that sometimes we get quarterly blips -- sorry, quarterly blips from a revenue side. In Q3, we had some catch-up revenue that I believe we talked about where we went from standby to full rates, and sometimes these plants go from full production into standby. So you could get some variability for short periods of time in the revenue stream as a result of that.

Okay. And at this point, is there any additional rental equipment that you're planning on deploying into the international market?

No. I mean, right now, we've -- throughout 2016, we completed our build-out and the fleet is operational. And those projects went from construction to fully operational during 2016. So, right now, what we're pursuing is additional RFPs where if we're successful, we'll start to deploy additional capital in 2017 on those, but we wouldn't expect that those projects would become contributors from a revenue standpoint until 2018 if they're awarded in late Q2 or even Q3 of '17.

Okay. And at this point, what do you expect CapEx to look like in '17?

Well, it'll all be dependent on these opportunities. I mean we've said in the past that the projects that we're chasing, if we win one of the three, we would expect to spend anywhere between $50 million to $70 million of CapEx on one of those projects, right? So that's -- right now, that would be a good placeholder, but obviously, Jeff, it'll be dependent on how successful we are on the bids that are out there, and that would drive our capital allocation and CapEx budgets for '17. So that's the growth CapEx that we're anticipating. And then on the maintenance CapEx, we've always said that somewhere between $15 million to $20 million on an ongoing basis is what's required to keep our fleet operational and our manufacturing facilities running.

Okay. And just to clarify, on the Permian contract that you talked about earlier, that's entirely a service-related agreement?

Operating and maintenance, yes, so it would show up in the service line.

Okay, great. And that's equipment that you guys have delivered through the Engineered Systems segment or will be delivering?

In the process of delivering, correct.

Okay, perfect. Thanks, guys. Good quarter.

(Operator Instructions) Our next question comes from the line of Jon Morrison of CIBC Capital Markets. Your line is now open.

James, on the strong Q4 bookings in Canada, can you give a sense of what timing of those deliveries will look like as well as the incremental stuff that you referenced in Q1? Would a normal delivery schedule hold? Or is there an expedited demand for delivery at this point?

Jon, we haven't seen an expedited demand for delivery. I think that it comes through the facilities in a meaningful way in Q2 and Q3. I mean, Q1, we're ramping up, but like I said in an earlier question, I think that the real material contribution from some of those bookings in Canada starts in Q2 and carries through to Q3 and Q4. But the delivery schedules are not expedited relative to historical patterns that we've seen.

Okay. Blair, can you touch on what you're seeing in Gas Drive right now in terms of your customer conversations for larger maintenance programs in the back half of the year?

Yes, it's a very uncertain time right now for service at -- certainly here in Canada. We've got the sort of juniors and the mid-tier companies that are still advancing their service and maintenance schedules. We've got larger customers that are still deferring those maintenance schedules. So it's all over the map at the moment. However, it has to change. Again, it comes down to what customers are thinking about in terms of the return on the money that they spend, the capital they spend and the time frame around which they can see a return on it.

So those are the driving maintenance decisions on the immediacy of that return. So we're kind of looking at a bunch of different ways of making that happen where we can maybe reengage with the customer on a different way. But it's extremely challenging right now in the Canadian market from the service perspective to get any visibility in terms of the maintenance intervals that would have been traditionally seen in the compression equipment here in Western Canada.

Of the incremental orders that you guys referenced in 2017 year-to-date, you only gave a North American aggregate number, should we assume that the international number is fairly irrelevant at this point? Or are you solely trying to highlight the strength in Canada and U.S.?

That's right. The strength of the North American bookings is what we're highlighting here and, again, without giving too much information at this point until we get the quarter behind us.

You guys referenced Canada being stronger than the U.S. in that number. Is it fair to assume though that book to bill in the U.S. should be over one-time throughout 2017 based on your line of sight right now?

I think that would be a fair assumption, Jon, yes.

Are you seeing anything outside of the Permian for demand right now?

Yes, there is demand outside the Permian. And so in the SCOOP/STACK, it just happens to be where we're strongest with what customer base at this point in time, recognizing, again, it's still relatively competitive in the U.S. And so people are hanging on to the strength of what customer base they've got and that's where our success has just been the strongest.

James, I was surprised, but perhaps impressed is a better term for the U.S. margins in the quarter given that I'd assume that you're moving through some lower embedded pricing work for stuff that was contracted during the downturn. Was it just a remarkable quarter for plant level execution? Or is this achievable in the coming quarters as well (multiple speakers) specifically just to the margins?

Yes, it would be fair to say that there was two contributors that really gave rise to the strength at the operating income margin line and EBIT percentage line. So one is obviously just the shop being significantly busier than it has been in a while, and that led to a much larger overhead absorption than we've experienced compared to the prior year.

But the other more telling stat, I believe, would be the product mix within the U.S. manufacturing facilities right now. I mean, in Q4 of '15, it was heavily weighted to compression almost 75%, with the balance being process. In Q4 of '16, we've seen a reversal of that. And most of it, 65% to 66% of it, is process weighted relative to compression. So that's been a contributor as well. When I look at the backlog, there is more process work right now in the backlog along with integrated turnkey work that typically carries a higher margin than the standard compression that we've built historically there.

Just to follow on Greg's earlier question, have any other major projects that you guys are bidding on in Latam or Middle East, either Engineered Systems or Rentals, been delayed or awarded to a competitor that you know at this point?

There has been delays. And some in the Middle East, we've been unsuccessful on, but I would say that, again, we repeat this over and over that the gestation period in the Middle East and Latin America tends to be longer and lumpier and some of those delays are either due to the process by which the customer comes to the conclusion or perhaps the commodity price. So it's not as linear as it would be in North America.

Has the number of international projects that you're bidding on expanded in the last three months?

Yes.

Okay. Last one just for me. Has the board discussed or did the board discuss any potential changes to the dividend? And what would you need to see for improved line of sight to think about increasing it at this point?

We don't look at the dividend until the third quarter each year, and at that time, management and board will have a review of that. So that's the typical time frame around it.

Appreciate the color. I'll turn it back. Good quarter.

Thank you. And I'm showing no further questions at this time. I'd like to hand the call back over to Mr. Blair Goertzen for any closing remarks.

All right. Thank you, operator. And since there are no further questions, I'd once again like to thank everybody for joining the call. And we look forward to giving you our first quarter of 2017 results in May. Have a good weekend.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.